US & World Daily Markets Financial Briefing 07-12-2009

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Traders To Show Apprehension For Want of Additional Clarity

The major U.S. index futures are pointing to a lower opening on Monday, with sentiment weighed down by the dollar’s rally and the consequent weakness of commodities. Additionally, overbought levels of the markets may deter some traders from taking additional positions. That said, weakness could be mitigated to some extent by positive pre-announcements from companies such as Akamai Technologies (AKAM) and MetLife (MET). Traders may closely watch the speech by Federal Reserve Chairman Ben Bernanke, scheduled to be delivered after the markets open.

U.S. stocks advanced in the week ended December 4th after turning in a lackluster performance in the previous week, with the markets shrugging off concerns triggered by the Dubai debt crisis.

Last Monday, the major U.S. averages closed mixed despite the release of a promising manufacturing reading from the Mid-western region. On Tuesday, stocks raced to a notably higher close, as traders picked up stocks at lower levels following the alleviation of concerned triggered by the Dubai debt crisis, which came to be viewed as a regional crisis with limited scope of developing into a global phenomena.

The major averages meandered to a mixed close on Wednesday, as traders digested a private sector employment report showing bigger than expected job losses. On Thursday, stocks declined moderately, as insipid chain store sales results offset the positive sentiment generated by a report, showing an unexpected decline in weekly jobless claims.

The major averages could not capitalize significantly on the flying start provided by the Labor Department’s monthly non-farm payrolls report on Friday, as they squandered much of the gains to end only modestly higher.

For the week, the Dow Industrials advanced 0.77%, while the S&P 500 Index and the Nasdaq Composite Index gained 1.72% and 2.62%, respectively.

Among the sector indexes, the NYSE Arca Airline Index jumped 16.02%, the Philadelphia Semiconductor Index rallied 8.20% and the Dow Jones Transportation Average climbed 4.56%. The Dow Jones Utility Average and the NYSE Arca Securities Broker/Dealer Index ended up over 3% each, while the NYSE Arca Biotechnology Index, the Philadelphia Housing Sector Index and the KBW Bank Index all gained over 2%. On the other hand, the Philadelphia Oil Service Index fell 1.88%.

Bay Street Stocks Could Extend Slump In Early Trading

Toronto stocks could fall early Monday as a stronger U.S. dollar is sending commodity prices into the red. U.S. futures are also pointing lower ahead of the Fed meeting.

Crude oil prices are down 47 cents to $75.11 per barrel, while gold has lost $9.50 to $1,146.40 an ounce and cooper is down 4.5 cents to $3.1925.

Franco-Nevada Corporation said on Sunday that it will make an offer to acquire Royalty Corp. for C$6.75 cash per share or about US$600 million.

Thompson Creek Metals Company said that it expects capital expenditures to be US$298 million in 2010.
 
Across the border, the Wall Street Journal reported General Motors Co. has hired recruiting firm Spencer Stuart to help find it a permanent chief executive officer.

On the economic front, government data showed Canadian building permits soared 18% in the month of October. This is compared to a revised spike of 3.16% in September.

The S&P/TSX Composite Index dropped 125.75 points or 1.08% to settle at 11,510.80. The market lost more than 1.2% on Thursday.

Friday's decline came despite encouraging employment news. Statistics Canada reported jobs rose 79,000 in November, bringing the unemployment rate down 0.1 percentage points to 8.5%. The U.S. Labor Department revealed that non-farm payrolls dropped by 11,000 last month, much less than expected.

Currency, Commodity Futures

Crude oil futures are edging up $0.46 to $75.01 a barrel after declining $0.58 or 0.76% to $75.47 a barrel in the week ended December 4th. The commodity suffered to some extent by the strengthening of the dollar in the second-half of the week.

Last Monday, crude oil rose by over $1-a-barrel, and the buying momentum continued into Tuesday’s session, with the black gold rising by over $1-a-barrel yet again, as a few positive economic readings were bullish for the commodity.

However, oil fell by over $1.70-a-barrel on Wednesday, as the weekly oil inventory report showed abounding crude oil stockpiles. The commodity edged down modestly on Thursday, and on Friday, oil fell by about a dollar despite the encouraging jobs data.

Gold futures, which slipped $6 or 0.51% to $1,169.50 an ounce last wee, are currently retreating $23.40 to $1,146.10 an ounce. The precious metal rallied through most of last week, climbing above the $1,200 level for the first time ever, before retreating sharply on Friday due to the dollar’s strength.

Among currencies, the U.S. dollar had an up-week in the week ended December 4th, with the greenback rising 4.65% against the yen to 90.56 and advancing 0.90% against the euro to $1.4853. The week’s strength emerged from bets that the Fed will soon raise interest rates, encouraged by the easing of strains in the jobs market.

Currently, the U.S. dollar is trading at 90 yen and is valued at $1.402 versus the euro.

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Asian Markets End In Negative Territory On Weak Commodity Prices

The markets across Asia ended in negative territory on Monday, dragged down by commodity stocks after commodity prices declined in the international market on the higher dollar. Gold prices also ended sharply lower in the Asian trading session. Japanese market, however, bucked the trend and ended higher on the weaker local currency and reports about government assistance for beleaguered Japan Airlines.

In Japan, the benchmark Nikkei 225 Index gained 145.01 points, or 1.45% to 10,168 while the broader Topix index of all First Section issues added 9.35 points, or 1.05%, to 899.

On the economic front, the Ministry of Finance revealed that the country's financial reserves totaled $1.07 trillion by the end of November, up from $1.06 trillion in October. The data further noted that as of November 30, foreign currency reserves amounted to $1.02 trillion, while reserves with the International Monetary Fund stood at $4.43 billion. Gold reserves totaled $28.93 billion, while SDRs were worth $21.54 billion.

Automotive stocks extended gains on weaker local currency and positive economic data in the U.S raising hopes of more demand in the U.S, the largest trading partner. Toyota Motor added 0.54%, Honda Motor advanced 0.66%, Isuzu Motor gained 3.51% and Nissan Motor rose 2.06%.

Exporters also ended higher. Canon Inc rose 3.31%, Sharp Corp. advanced 1.31% and Sony Corp. gained 1.79%.
 
Japan Airlines, the beleaguered airline company surged 7% following reports that the Government is considering providing up to 700 billion yen in credit guarantees to the cash-strapped carrier. The other airliner, All Nippon Airways climbed 4.51%.

Shipping stocks also ended in positive territory. Kawasaki Kisen Kaisa gained 4.49%, Mitsui OSK Lines rose 2.78% and Nippon Yusen climbed 2.91%.

Mixed trading was witnessed among the banking stocks. While Mitsubishi UFJ Financial rose 1.01% and Mizuho Financial added 0.59%, Sumitomo Mitsui Financial declined 1.03% and Resona Holdings edged down 0.20%.

In Australia, the benchmark S&P/ASX200 Index slipped 25.70 points, or 0.55% to close at 4,677, while the All-Ordinaries Index ended at 4,695, representing a loss of 26.00 points, or 0.55%.

On the economic front, results of a survey released by ANZ Banking Group revealed that total job advertisement in Australia climbed 5.2% in November compared to the previous month, coming in at 140,658 advertisements. In the previous month, the job ads declined 1.7% to 133,709, the results revealed.

Index stood at a seasonally adjusted 47.6 in November, down from 50.9 in the previous month. A reading above 50 indicates expansion, while one below 50 suggests contraction.

A report released by the Australian Bureau of Statistics revealed that visitor arrivals to the country rose a seasonally adjusted 0.2% month-on-month to 480,500 in October, compared to the 4.1% increase in September. The data further noted that the number of departures by Australian residents grew a seasonally adjusted 7.5% month-on-month during October to 570,200, after having declined 4.9% during September.

Mining and metal stocks declined following drop in commodity prices in the international market.

BHP Billiton declined 1.91%, Rio Tinto slipped 0.36%, Fortescue Metals shed 0.70%, Gindalbie Metals lost 0.51%, Minara Resources fell 2.55% and Oz Minerals decreased 1.22%.

Gold stocks slumped on sharp fall in bullion prices in the bullion market. Lihir Gold lost 4.82% and Newcrest Mining slumped 6.02%.
 
Oil related stocks also ended in negative territory. Woodside Petroleum declined 1.63%, Santos lost 1.01% and Oil Search fell 1.99%. However, Origin Energy bucked the weak trend and ended in positive territory with a gain of 0.13%.

Banking stocks also ended weaker. ANZ Banking edged down 0.14%, Commonwealth Bank of Australia slipped 0.32%, National Australia Bank shed 0.36% and Westpac Banking declined 0.62%.

In Hong Kong, the Hang Seng Index ended in negative territory with a loss of 173.19 points, or 0.77% at 22,325, taking cues from other markets in the region, dragged down by weaker commodity prices that declined following the strength in the US dollar against the euro and the pound. Positive closing on Wall Street on Friday on better-than-expected jobs data failed to influence market sentiment. Of the 42 components in the index, as many as 36 stocks ended in negative territory.

In South Korea, the KOSPI Index ended in positive territory with a gain of 7.89 points, or 0.49%, to 1,633, taking cues from Wall Street where the major averages ended with modest gains on Friday following better than expected jobs report for November. Foreign institutional investors evinced fresh buying interest on blue-chip stocks on increasing confidence about sustaining recovery. However, weaker commodity prices capped the gains in the market.

The Indian market fell notably on Monday, as a better-than-expected U.S jobs report triggered speculation of a Fed rate hike, helping the U.S dollar rise to a five-week high against a basket of global currencies. A stronger dollar may slow down the flow of capital into emerging markets. The BSE Sensex finished at 16,983, down 118 points or 0.69%, while the S&P CNX Nifty fell 42 points or 0.83% to 5,067.

Among other major markets in the region, China's Shanghai Composite Index gained 14.85 points, or 0.45% to close at 3,332, Taiwan's Weighted Index rose 1.63%, or 124.73 points, to close at 7,776, and Singapore's Strait Times Index advanced 5.97 points, or 0.21%, to close at 2797. However, Indonesia's Jakarta Composite Index ended in negative territory with a loss of 27.79 points, or 1.11%, at 2,484.

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The major European markets are trading on a mixed note, with the French CAC Index rising 1.09%, while the German DAX Index and the U.K.’s FTSE 100 Index are moving down 0.42% and 0.32%, respectively.

In economic news, the German Federal Ministry of Economics and Technology said German factory orders dropped for the first time in eight months in October due to a sharp drop in orders from the Eurozone. Factory orders fell 2.1% month-over-month in October following the 1.3% increase in the previous month. Economists had estimated a 0.8% decline

U.S. Economic News

After a flurry of data releases in the week ended December 4th, traders now turn their attention to a relatively calm week that includes a couple of key economic numbers on its calendar. The Commerce Department's retail sales report for November, the preliminary Reuters/University of Michigan consumer sentiment index for December and the weekly jobless claims report are likely to be on the radar, as market participants attempt to reconcile their views and conjectures regarding the economy with factual information.

Additionally, traders may closely watch the Commerce Department's trade balance report for October, the Labor Department's import and export prices for November and the results of the Treasury auctions of 3-year notes (due to be announced at 1 PM ET on Tuesday), 10-year notes (due to be announced at 1 PM ET on Wednesday) and 30-year bonds (due to be announced at 1 PM ET on Thursday).

Speeches by Federal Reserve Chairman Ben Bernanke and Federal Reserve Governor Elizabeth Duke could also be in the spotlight. Other economic reports that are scheduled to be released in the week include the Federal Reserve's consumer credit report for October, the Commerce Department's wholesale and business inventories reports for October, the weekly oil inventory report and the Treasury Budget for November.

Weak chain store sales do not hold much promise for retail sales. However, the weakness is likely to have been offset by higher e-commerce sales and fairly strong auto sales. Housing-related items may also have fared well, given the higher home sales. At the same time, consumers mood is likely to have received a boost from the rising equity markets.

Some recent positive economic numbers should dispel the gloom encircling the economic horizon and lead to a slight uptick in the consumer sentiment index calculated based on the Reuters/University of Michigan's survey.

The trade deficit for October is likely to widen slightly from the previous month's level, as rising oil prices exert upward pressure on imports, while anemic aircraft shipments by Boeing are expected to drag down exports. That said, economists expect the trade balance to position itself on an improving track in 2010, given the weaker U.S. dollar and sagging domestic demand.

Bernanke is due to speak to the Economic Club of Washington, D.C. at 12 PM ET.

The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 PM ET. Consumer credit for October is likely to show a decline of $9.3 billion.

In September, consumer credit declined by $14.8 billion. Revolving credit, which received a boost from the cash for clunkers program in August, fell by $4.9 billion, while non-revolving credit declined by $9.9 billion.

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Boeing (BA) could gain ground after it announced that Korean Air has ordered five 747-8 Intercontinental jetliners. The company noted that the airplanes have a total average list price value of $1.5 billion.

Shaw Communications (SJR) is likely to react to its announcement that it has agreed to purchase for cancellation 1.5 million of its outstanding Class B shares outstanding as of November 30th, 2009. The announcement follows a private agreement between Shaw and a third party seller for an aggregate purchase price of $29.74 million.

Santarus (SNTS) may see some activity after it announced that the FDA has approved its NDA for immediate-release omeprazole tablets for treating heart burn and other symptoms associated with gastroesophageal reflux disease. The company had submitted the NDA in January 2009.

Another stock that could be in focus over an FDA approval is Eli Lilly (LLY), which announced that the apex body has approved its Zyprexa tablet as an option for the treatment of schizoprenia and manic or mixed episodes associated with bipolar disorder in adolescents aged 13-17 years.

Microsoft (MSFT) and Yahoo (YHOO) could also be in focus after they announced that the companies have finalized and executed the definitive Search and Advertising Services and Sales Agreement and License Agreement, formalizing the agreement announced in July. The companies said they expect the closing of the transaction to occur in early 2010.

MB Financial (MBFI) may move in reaction to its announcement that its subsidiary MB Financial Bank has acquired deposits and loans of Benchmark Bank in a FDIC-assisted transaction. Similarly, New York Community Bancorp (NYB) acquired all deposits and certain assets of AmTrust Bank from the FDIC.

Archer Daniels Midland (ADM) is likely to see some activity after it announced that the U.S. Department of Energy has awarded the company a $24.8 million grant to develop and construct a facility to convert biomass into renewable fuel.

Akamai Technologies (AKAM) is likely to be in the spotlight after it said it expects fourth quarter revenues to be in the range of $230 million-$235 million and normalized earnings in the range of 42-43 cents per share. This represents an upward revision from its earlier estimate of $217-$224 million in revenues and 39-41 cents per share in earnings. The company attributed the optimism to stronger volumes in its commerce and media verticals.

MetLife (MET) could see some activity after it said its expects operating earnings of 2010 to be about 50% over the previous year’s at $3.3 billion to $3.6 billion or $4 to $4.40 per share. The company said it benefited from a 6%-8% increase in premiums, fees & other revenues, improving investment margins and lower expenses. Analysts estimated earnings of $4.11 per share.

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